PEPSICO’S acquisition of Pioneer Foods is expected to help PepsiCo gain a solid beachhead for expansion into sub-Saharan Africa by boosting the company’s manufacturing and go-to-market capabilities. Reuters

JOHANNESBURG  - PepsiCo's deal to acquire Pioneer Foods for nearly R25 billion on Wednesday was hailed as a massive boost for the economy, despite the perceived and actual political and socio-economic risks in the country.

This is according to Andrew Bahlmann, managing director of Deal Leaders Africa, a boutique mergers and acquisition advisory firm.

Last week, PepsiCo -- a wholly-owned subsidiary of the US multinational food, snack and beverage corporation -- gave notice of its firm intention to make an offer to acquire the issued ordinary shares of South African packaged goods company Pioneer Foods for U.S.$1.7 billion.

The PepsiCo offer will be made at a base price of R110 per Pioneer Foods ordinary share, with possible increases linked to dividends.

Bahlmann said that the growth opportunities afforded by Pioneer far outweigh the risk of investment.

He said that in this deal, these foreign firms are investing despite negative economic growth, the uncertainty surrounding Eskom, and the risk of a further investment downgrade by ratings agency Moody’s in November.

"While there are assets trading at very attractive valuations in South Africa, acquirers are willing to pay significant premiums – as in the case of PepsiCo – as they take long-term views as far as their investment horizon is concerned," Bahlmann said.

"We are seeing a growing trend with international acquirers look at far longer term investment timelines than your average local investor.

"One cannot simply look at the South African ‘economy’ as a whole when making these sorts of investment decisions. One has to look at each industry in isolation and realize that every investment destination has its pros and cons."

Bahlmann said it was clear that PepsiCo sees South Africa as a strategic investment destination and an investment conduit into the rest of Sub-Saharan Africa. 

"PepsiCo has pointed to the fact that this transaction will help it gain a solid beachhead for expansion into Sub-Saharan Africa by boosting the company's manufacturing and go-to-market capabilities, enabling scale and distribution," he said.

"A low risk investment in the US may yield a 10 percent return versus a higher risk return in the likes of South Africa at a possible 40 percent return. These calls are all about risk versus return."

- African News Agency (ANA)